May 24, 2018

Canada ready to cover Kinder Morgan loss, sees outside interest

OTTAWA (Reuters) – Canada is prepared to cover some losses Kinder Morgan Canada Ltd might suffer if a proposed oil pipeline expansion is delayed and thinks other investors are ready to step in if need be, Finance Minister Bill Morneau said on Wednesday.

The company has given Ottawa a deadline of May 31 to provide assurances it can proceed with a plan to more than double the capacity of its Trans Mountain line from Alberta to British Columbia. The government of the Pacific coast province opposes the project on environmental grounds.

“We are willing to indemnify the Trans Mountain expansion against unnecessary delays that are politically motivated,” Morneau told reporters on the same day that Kinder Morgan Canada is holding its annual general meeting.

The issue could become one of the biggest crises facing Prime Minister Justin Trudeau, whose Liberal government approved the expansion. Trudeau says Canadian oil producers are losing C$15 billion ($11.7 billion) a year because pipeline bottlenecks mean they cannot get their crude to export markets.

Morneau said if Kinder Morgan decided to walk away from the project, the indemnification would stay in place in case someone else took over. Whether the company would allow a rival to take charge of the expansion is unclear.

“If Kinder Morgan is not interested in building the project we think plenty of investors would be interested … especially knowing that the federal government believes it is in the best interest of Canadians,” Morneau said.

Despite the legal and political challenges, it is likely investors would consider a commercially sound project with Ottawa behind it, said Andrew Leach, associate professor of business economics at the University of Alberta.

“It’s an attractive midstream energy project and there are lots of players in Canada and internationally that would look at that type of a project,” he said.

Morneau declined to say what aid Ottawa could provide or how much. Sources have previously said Ottawa is examining options such as loan guarantees, a bailout, or taking a stake in the C$7.4 billion project.